Some people have gotten tired of investing their money because of past failures and wrong decisions. Discouraged by losses brought about by the global financial crises in the past, many have opt to be too “conservative” that they just leave all their money in savings and time deposit accounts. Or worst, they just keep them under their pillows.
Taking risks again after losing thousands of bucks from investing in unknown businesses or schemes will not be very easy. Many of them admit that they have learned their lesson well and therefore decided not to invest again. However, this is a wrong approach of learning from life’s failures.
Here are three proper ways to learn and move on from all these bad experiences.
Educate Yourself Before (Re-)Investing
Several years ago, I did not know anything about paper assets. I did not know anything much about pooled funds any other type of investment. Without even doing my research on variable universal life insurance, I invested* my first few savings in it. Not knowing that if I fail to pay the premium on time, the entire amount that I put in will be forfeited. I will no longer be covered with the insurance that I paid for.
And so the time came when I could no longer pay the monthly premium. The rest is history. All my savings were gone because of an uneducated decision to buy an expensive life insurance. I should have analyzed first what type of insurance suited my needs and capacity back then.
But don’t get me wrong. I’m not against life insurance. In fact, I would even advice you get a life insurance to protect your family and your assets. Get a variable unit-linked (VUL) insurance in case you have not invested on any paper assets yet, or a term life insurance if you are already investing in the stock market or mutual funds for the long-term. Or whatever really suits you.
Make sure that you purchase your life insurance only from the longest-running, best-performing, and reputable insurance companies in the country. No unknown and untrained insurance brokers please.
Never go to a war without studying your strategies. Know thyself and know thy enemy.
Are you planning to invest for your future, your children’s education, or to build your first home? Set your long-term investment goals clearly.
*Life insurance serves as protection to your assets. It is not classified as an investment but it provides cash to pay for debts and liabilities, taxes, final expenses and other fees without selling assets or borrowing money in case of an individual’s sudden death. It also helps provide for an organized distribution of assets to heirs based on beneficiary designation.
Build Your Emergency Fund
While educating yourself about investment, take time to build your emergency fund.
Did you remember the last time you lost your money in an investment vehicle you did not even understand in the first place? I’m assuming that the risks of investing in that instrument were not clearly explained to you by your agent. Or if he did, most probably you were not paying attention to the details or did not have a clue on what he was saying.You probably were just interested in harvesting the promised high returns.
You know better this time. Keep an emergency fund of at least six months’ worth of your monthly expenses.
In the event that your next investment falls apart again, you have your emergency fund to back you up. But don’t stop saving for your emergency fund even when you already reached that goal.
You can keep that emergency fund in two bank accounts from two different reputable banks. Put half of that in a regular savings account, and the other half on a short-term time deposit account.
Choose The Right Investment Vehicle
Once you have a firm understanding of the different financial instruments available around you, make a choice on whether you will go for the low-risk paper assets such as government/private bonds, treasury bills, money market, etc. or medium-risk investments such as blue-chip stocks, UITF’s, and mutual funds.
Scatter at least 20% of your monthly income on these investment vehicles with most of it in blue chip stocks. Using the cost-averaging method for your long-term investment, your money will grow over time regardless if the economy is down or taking off. Use the power of compounded interest.
For people who experienced family feuds, breakups, depression, or suicidal tendencies, I advise that you do not dip your feet in high-risk investments such as speculative/active stock trading or forex trading. But if you insist, invest only an amount in excess of your funds that you can afford to lose.
Time To Move On
Once you followed those three major steps, it’s best that you focus on the long-term goals that you have set from the beginning.
It is true that it is hard to forget the painful past (and you shouldn’t). But instead of looking at these as obstacles, make use of it as your motivation to learn more and become stronger to achieve those goals.
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